Money spinner

New Delhi, July 25: Maruti Udyog Ltd has posted a 32 per cent increase in net profit at Rs 226 crore for the quarter ended June 30 against Rs 171 crore in the year-ago period. This was because of a surge in demand for its newly-launched Swift model.

Maruti, the Indian affiliate of Japanese car-maker Suzuki Motor, launched the Swift in May to offset declining demand for the Maruti 800 and the Zen.

An over 30 per cent drop in sales of the Maruti 800 in 2004-05 also forced the Gurgaon-based auto giant to slash the prices of its entry-level car by Rs 16,000 to below Rs 2 lakh.

Quarterly sales rose more than 3 per cent to Rs 2,613 crore even as the number of cars sold at 1.21 lakh was 1.4 per cent lower than the year-ago period.

Maruti has been battling higher cost of raw materials such as steel, plastics, aluminium and rubber.

A company spokesperson said raw material costs rose 9.6 per cent to Rs 21.4 crore in the April-June quarter.

The company wants to bring in a clutch of new models in various price bands next year as well as launch diesel cars.

But the real battle for Maruti is likely to be in the low price-band market.

General Motors is expected to re-launch Daewoo's Matiz in a new re-tooled avtar as its small car Spark, while German car-maker Volkswagen is also likely to come out with a small car based on the Volkswagen Fox by next year. Both cars are expected to pose a price challenge for the entry-level segment where the M800, the Alto, the Zen and the Wagon-R of Maruti compete with Hyundai's Santro at present.

The aerodynamically designed Swift has been successful in retaining the loyalty of first-time owners of Maruti 800s.

But with competition intensifying, things may not be easy for Maruti or its rivals. Foreign car-makers like Volkwagen are entering the country, attracted by a 20 per cent growth in the auto-market in 2004-05.

“India and China will be the two biggest automobile markets in the developing world as they are for most other goods,” said S. Lahiri, an analyst with a global equity fund specialising in the auto sector. “But in an open economy, this means added competition and thinner price margins instead of a suppliers market,” he added.

Analysts forecast that Indians will buy around a million new cars this year. The boom in the auto industry is fuelled by changing consumer perceptions and rising incomes combined with cheap finance.